Overview
The Vasicek short rate model is specified by the equation
{% dr_t = (b - a r_t) dt + \sigma dW %}
where {% r_t %} is the short rate at time {% t %} and {% a %} and {% b %} are constants.
Sometimes the terms are re-arranged and it is written as
{% dr_t = a(b - r_t) dt + \sigma dW %}
Topics
- Bond Pricing
- Simulating
- Bond Option Pricing
- Calibration - calibration is done against 3 selected zero coupon bonds, but will not fit the entire curve